If Our Cities Are to Improve, the Feds Need to Get Out of Their Way

Canada's cities are facing dire infrastructure problems that threaten to undermine their productivity and quality of life. This isn't news to anyone. But what is rarely discussed is how diverse the needs of various cities are. Federal Transport Minister Denis Lebel knows a thing or two about this. As former mayor of Roberval, Quebec, he has had to deal with these issues directly. The minister recently announced a timetable for consultations with the provinces and municipalities to establish long-term funding from the federal government to meet these challenges.

While it is understandable that the former mayor of a small, cash-strapped city would see the federal government as a revenue source for the cities, this approach is prone to politicization and favouritism. If the federal government is going to be involved in infrastructure financing, it must not pick winners and losers. It must be neutral between cities and give them the flexibility to fund the projects they need.

Now that the discussion has turned toward the specific needs of specific types of cities -- big or small; new or old -- the debate will no doubt become about how cities ought to be treated differently by the federal government. This already happens, primarily with respect to Canada's biggest cities, which often receive funding for major projects from the federal government. Make no mistake: Big city mayors have a point when they claim they are being short-changed by the federal government. There is a strong case to be made that Torontonians and Calgarians, among other urban residents, pay out more than they should to federal and provincial governments. Since residents are only willing to pay so much in taxes, this chokes off revenue to municipal governments. That, and the fact that the only significant revenue source they have is the property tax. That particular issue is the fault of provincial, rather than federal governments. But the federal government does have the capacity to help municipalities help themselves. The most obvious sources of funding are fuel taxes.

Advocates of a national transit strategy recognize that cities have varying needs. As Calgary Mayor Naheed Nenshi pointed out, "Where places like Levi (Quebec) may need to repair their bridges, places like Calgary not only need to repair the ones we've got, we need to build them in the first place."

This distinction is very important, as cities typically cover the majority of operating and maintenance costs for infrastructure, while upper levels of government typically finance the majority of capital costs. These varying needs mean that any national transit strategy would have to assess these needs properly, while assuming that the mayors sitting at the bargaining table are asking for what they need, and nothing more. This approach is bound to leave many cities getting a good deal at the expense of others.

Instead of attempting to craft a national transit strategy, which will inevitably entail picking winners and losers, the federal government should download fiscal capacity. That is, after all, the crux of the problem. It is hard to imagine the federal government making better local infrastructure decisions than municipal politicians. But they can alleviate the revenue problem faced by virtually every municipality by transferring the entirety of fuel taxes to the municipalities on a per-capita basis. This would give cities access to a stable additional source of revenue. It would also end the ad hoc, hyper-politicized funding agreements that often cause municipalities to make inefficient transit decisions.

Expanding the Toronto subway to Vaughan is a prime example. The city likely would not likely have prioritized that extension if they had complete autonomy over infrastructure spending. But when strings are attached, federal and provincial political considerations win the day. From the city's perspective, something is better than nothing. But the choice shouldn't be between what upper levels of government want, and nothing at all.

Rather than exacerbating the constant squabbling between cities for who gets what from upper levels of government, and who is getting ripped off by which other city--think of the acrimonious debates between cities and rural municipalities -- local taxpayers should be empowered to pay for their own infrastructure. Calgarians know better than people in Northern Alberta, let alone than in Ontario, what type of infrastructure they need. When the money comes from a far-off capital, there is no reason to believe that they will get precisely what they need and want. Other transfers may be worth exploring, such as sharing the GST, but it must be done on a purely per capita basis with no strings attached. And if municipalities feel the need to experiment with other forms of taxation, they should be permitted to do so. The only way to ensure that they get exactly what they want is to hand them the bill directly. Rather than a "national transit strategy," we need a "municipal empowerment strategy." Only then will cities be able to provide the infrastructure Canadians so desperately need.